Revenues Not Telling The Story For United States Cellular Corporation (NYSE:USM)

With a median price-to-sales (or "P/S") ratio of close to 0.8x in the Wireless Telecom industry in the United States, you could be forgiven for feeling indifferent about United States Cellular Corporation's (NYSE:USM) P/S ratio of 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for United States Cellular

What Does United States Cellular's P/S Mean For Shareholders?

United States Cellular hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think United States Cellular's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For United States Cellular?

The only time you'd be comfortable seeing a P/S like United States Cellular's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 5.7% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.2% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 0.1% per annum during the coming three years according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 5.4% per year, which is noticeably more attractive.

With this information, we find it interesting that United States Cellular is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at the analysts forecasts of United States Cellular's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with United States Cellular (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.